It would build on the key features of the CPP, and could later be integrated with the CPP should negotiations on an enhancement be successful in the future.
The ORPP would include the following design features:
- A predictable stream of income in retirement by pooling longevity and investment risk, and indexing benefits to inflation, similar to CPP’s retirement benefit.
- Equal contributions shared between employers and employees, not exceeding 1.9% each (3.8% combined) on earnings up to a maximum annual earnings threshold of $90,000. The ORPP maximum earnings threshold would increase each year consistent with increases to the CPP’s maximum earnings threshold.
- Aim to provide a replacement rate of 15% of an individual’s earnings, up to a maximum annual earnings threshold of $90,000.
- Publicly administered at arm’s length from government, have a strong governance model and be responsible for managing investments associated with annual contributions of approximately $3.5 billion.
- Benefits would be earned as contributions are made to ensure that the system is fair, and younger generations are not burdened with additional costs.
Since the ORPP is intended to assist individuals most at risk of undersaving, particularly middle-income earners without workplace pensions, those already participating in a comparable workplace pension plan would not be required to enroll in the ORPP.
The ORPP would be introduced in 2017 to coincide with the expected reductions in Employment Insurance premiums.
Enrollment of employers and employees into the ORPP would occur in stages, beginning with the largest employers. Contribution rates would be phased in over two years.
“In some ways, one can understand why the Ontario government wants to model the CPP and create a relatively secure retirement benefit for people,” says Ian Edelist, a principal with Eckler. “On the other hand, there are quite a few things about the ORPP that are going to cause difficulty.”
He questions whether ORPP contributions will qualify for a tax deduction or a non-refundable tax credit and if ORPP benefits will affect available RRSP contribution room.
PRPPs
After reviewing feedback from a variety of stakeholders, the government has decided to move forward with a legislative framework for pooled registered pension plans (PRPPs). It would include the following key design features:
- Voluntary participation and contributions by employers—Employers would choose whether to offer their employees a PRPP and whether to contribute to their employees’ PRPP;
- Automatic enrolment of employees—Where an employer elects to offer a PRPP, enrolment of employees would be automatic unless an employee chooses to opt out within a specified period; and
- Low cost—Administrators would be required to provide PRPPs at a low cost to plan members.
The government intends to introduce PRPP legislation in the fall of this year.
“The PRPP seems a bit of a throwaway,” he says. “Other governments have it as a major part of their budget, but for Ontario because it is also introducing the ORPP. I think the PRPP is more like ticking the box. It’s going to be completely voluntary.”
There were some other pension-related items in the budget:
Target benefit plans (TBPs)
The province intends to consult on a regulatory framework for multi-employer target benefit pension plans with a view to introducing a framework that sets out eligibility conditions, funding rules and governance requirements. Feedback from these consultations will help in subsequently developing a framework for single-employer target benefit pension plans.
Reform of funding rules
The government plans to enact regulations that define the funding level at which a contribution “holiday” can be taken and the duration. In addition, proposed new regulations would set parameters for accelerated funding of benefit improvements in underfunded pension plans. These new rules would ensure plans can manage future funding pressures and continue to pay for the benefits they offer in the longer term.
The government will also carefully consider, in consultation with affected stakeholders, the implementation of other funding rules changes to support the long-term sustainability of DB pension plans in Ontario.
As well, the government intends to address the regulations that temporarily exempt specified Ontario multi-employer pension plans and jointly sponsored pension plans (JSPPs) not subject to solvency funding requirements from the “solvency concerns” test. This test currently requires plans with solvency funded ratios of less than 85 per cent to file plan valuations with the regulator annually, rather than triennially.
The government intends to extend the exemption that would otherwise expire on December 31, 2014, to December 31, 2017, to allow sufficient time for consultation on an appropriate test for all non-solvency funded plans. This would include target benefit pension plans, for which a framework is currently under development.
The government is also currently seeking feedback from stakeholders before putting in place new regulations to further enhance transparency and accountability with respect to plan funding and investment strategies to plan members as well as former and retired members.
Asset pooling
The government will be moving forward with a framework to enable pooling of assets of pension plans in the broader public sector as well as endowment and other funds of public entities in order to improve their investment results. Larger pools of capital enable access to a broader range of investments, which is key to improving risk-adjusted returns.
The Province will target the introduction of legislation in the spring of 2015 to enable the establishment of a new asset pooling entity, which would operate at arm’s length from government.
The Workplace Safety and Insurance Board and the Ontario Pension Board have strong investment track records and are willing and well placed to be initial participants in the new pooling entity.
Participation of other pension plans and qualified organizations in the pooling entity would be on a voluntary basis.
Converting to JSPP models
The 2013 budget announced the government’s intent to facilitate the transfer of assets from employer-sponsored, single-employer pension plans (SEPPs) to JSPPs and to allow employer-sponsored SEPPs to be converted to JSPPs. Through this budget, the government is fulfilling this commitment by introducing legislative amendments to the Pension Benefits Act that would create regulatory authority to prescribe requirements for plan conversion.
To ensure that the new JSPP protects the existing pension entitlements for converting members, and is transparent and voluntary, the amendments would require that:
- The same pension be provided to retirees and the equivalent value be provided to current employees upon conversion;
- Notice be provided to all plan beneficiaries and trade unions;
- Consent of plan beneficiaries be obtained prior to the plan conversion; and
- The approval of the Superintendent of Financial Services be granted.
In some circumstances, plan sponsors may prefer to transfer their pension responsibilities to an existing JSPP. The government intends to make regulations to ensure that the assets transferred are sufficient to fund the transferred liabilities, while not unduly subsidizing or enriching existing JSPP beneficiaries.
The government recognizes that the availability of an exemption from solvency funding rules for new JSPPs is an important factor for stakeholders exploring conversions.
Employers and plan members joining an existing JSPP that is already exempt from solvency funding requirements would receive the same treatment.
The government will consider exempting new JSPPs that involve multiple employers from solvency funding requirements, subject to certain criteria, to be developed in consultation with stakeholders. For new single-employer JSPPs, consideration will be given to whether sufficient protections are in place for members and whether the plans can be expected to be sustainable in the future before providing a similar solvency exemption.
